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Cox, Archer

Why $16 trillion only hints at the true U.S. debt

As Washington wrestles with the roughly $600 billion “fiscal cliff” and the 2013 budget, the far greater fiscal challenge of the U.S. government’s unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one. …

The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

Why haven’t Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. …

Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities imply. Borrowing on this scale could eclipse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.

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Apples and oranges.

The debt exists as legal, interest-bearing obligations now. Those pension benefits can still be paid out of future tax revenues, assuming the US gets its fiscal house in order. The debt represents a shortfall in tax expenditures already collected and spent. Those pension obligations do not.

The debt exists as legal, interest-bearing obligations now. Those pension benefits can still be paid out of future tax revenues, assuming the US gets its fiscal house in order. The debt represents a shortfall in tax expenditures already collected and spent. Those pension obligations do not.

Yet…

JohnGalt23 on November 27, 2012 at 11:01 AM

Assuming the government institutes a maximum age limit and euthanize’s anyone who exceeds it, we wouldn’t need social security.

Well, I can’t complain because I was the recipient of welfare. Back in the ’30’s we received free lunch at the American Legion next door to the school. Beans with no flavor, cornbread and milk that I know didn’t come from a cow. More like punishment than help for the poor.

I haven’t started on my economics degree. Someone break this down for me.

DeathtotheSwiss on November 27, 2012 at 2:28 PM

Unfunded liability is a future debt you know you will incur, and have no way identified of paying for it. Sort of like a college education for your newborn.

You know you intend to send him/her to college, but you don’t have the cash right now. So you have to budget your income over the next 18 years to save enough to pay for it. You must also estimate how much college will cost in 18 years, now how much it costs now.

This is an imperfect analogy, because you are not required to pay for or send your child to college, so its a voluntary liability. In the case of Social Security, its statutory.

What if the Republicans allowed the Fiscal Cliff to happen, but at the same time passed bills cutting tax rates by 20% across the board, basically forcing the Romney/Ryan tax plan on the Senate and White House as the only way to avert some of the suffering from the coming recession?

And then they passed another budget that reversed some of the heavy cuts to Defense while reforming entitlements via Ryan’s Path to Prosperity?

The media would murder the party, but could this work as a way to force through Fiscal Conservatism?

These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.

If the media were doing its job, this would be an on-going investigation on the front pages. Alas, the evil GOP wanted to make Big Bird (and his millions in profits) stand on his own without handouts.

The debt exists as legal, interest-bearing obligations now. Those pension benefits can still be paid out of future tax revenues, assuming the US gets its fiscal house in order. The debt represents a shortfall in tax expenditures already collected and spent. Those pension obligations do not.

Yet…

JohnGalt23 on November 27, 2012 at 11:01 AM
Assuming the government institutes a maximum age limit and euthanize’s anyone who exceeds it, we wouldn’t need social security.

We both have expressed a fantasy with our assumptions.

BobMbx on November 27, 2012 at 2:23 PM

I have to believe, as someone who wants to continue to be an American citizen, that the US getting its fiscal house in order is not that fantastic.

Apples and oranges.
Fruit
Round
Grow on trees
Seeds
Used for juice
Used for pie
etc….